News

July 17, 2018

What Is the Financial Impact of Accountable Care?

The healthcare system is the target of several payment and delivery system reforms. The Accountable Care Organization (ACO) model promotes restructure. systems. It encourages higher quality care and lower costs.

These groups of physicians, hospitals, and others work together for the financial and quality outcomes. This shift in risk from the insurer to the healthcare provider is different from the past. Now six years in, there are lessons learned.

As the ACO framework evolves and improves, what are the financial impacts? Several high profile withdrawals from the program give a clue. But what about the successes? ACOs affect patients, but what about healthcare providers?

Read on to learn more.

Models of Accountable Care

The Centers for Medicare & Medicaid Services (CMS) and insurers developed different models of ACO. Providers are eligible for bonuses based on savings and outcomes.

ACOs exist to enhance collaboration and to decrease the use of unnecessary services. This improves quality and health outcomes for patients. This efficiency achieves cost savings for Medicare, insurers and patients.

Winners and Losers in 2018

The Medicare Shared Savings Program (MSSP) initiative launched in 2012 under the Affordable Care Act. MSSP offers a few tracks.

Track 1 shares 50 percent of savings and does not require repayment if spending is over target. There are no potential losses. The vast majority (82%) of participating organizations choose Track 1.

Track 1+ is a modified risk share of 50% savings with a potential repayment of 30% of losses. For those organizations which must exit Track 1 due to time constraints, it is the least risky.

Track 2 shares 60 percent of savings, with a potential downside. The organization must share 60% of the loss for failure to meet benchmarks. Track 2 offers higher profitability for proven competent organizations.

Track 3 is the most risky, with the highest upside of 75% shared savings. Very few ACOs have chosen Track 2 or 3.

Evidence that ACOs improve quality of care exists. ACO’s outperformed more than 90% of all nonparticipating providers in avoiding re-hospitalization. But cost savings to the government are much less clear.

Government Cost Savings Not Found

In 2010, the prediction was that the financial impact of accountable care models would be $1.7 billion in savings. CMS did not actually produce any savings. The Department of Health and Human Services (HHS) found that participant ACOs of MSSP reduced spending by about $1 billion.

A report by Avalere in March 2018 found that the MSSP cost CMS $384 million from 2013-2016. Track 1 ACOs increased federal spending by $444 million. ACO participating in Tracks 2 and 3 reduced federal spending by $60 million.

This evident cost shift instead of savings may be one reason for the proposed new rule. The proposed changes pressure ACOs to move to models that include downside earlier than the six years now allowed. ACOs have the option to stay in Track 1, for up to two contract periods under the present rule.

The expectation is that CMS will propose cutting the time limit. Three years or one contract period is the new time constraint before transition.

Financial Impact of Accountable Care on Organizations

A high profile stream of ACO exits from MSSP indicates that organizations that organizations might have reached their limit. Many organizations are not confident they can further reduce costs and maintain high patient care quality. This is especially true of smaller and rural organizations.

The constant evolution of the program and increased pressure to take on financial risk disturbs ACOs. This especially true of those with a high penetration of managed care in their areas.

ACOs that developed efficient healthcare spending in the past years are at a crossroads. How and what remains to be cut for increased savings each year is unknown.

A major reason ACOs are reluctant to embrace more risky tracks is the way patient populations are assigned retroactively. That means that the providers do not know until year-end which patients’ care “counts”. As payments depend on improved care quality and lowered costs, the information gap is crucial.

The demographics of patients assigned to an ACO could change each year, which affects decision-making about care. Additionally, organizations must show financial ability to pay the government for their missed goals. For smaller organizations, missing goals could bankrupt them.

Infrastructure Investment vs. Savings

For small populations of a few hundred or so patients, the infrastructure investment alone would far outstrip any cost savings. The traditional fee for service model pays far more than the possible reward of the risk-based model. However, in larger groups, efficiency can be found in managing administrative overlap and focused efforts on particular types of chronic conditions.

One large ACO generated $60.6 million in savings in 2016, half of which returned to its coffers. Their concentrated efforts in improving the post-discharge care of patients with congestive heart failure resulted in fewer hospitalizations and readmissions.

Applying this lesson to other conditions could result in similar savings. These savings are possible through virtually seamless care from the first preventative steps to post-operative care. For other organizations, the risk of losses outweighs any potential upside.

Risk Adjustments Affect ACO Exits

As the programs evolve, CMS adjusts risk scores. This lack of predictability during enrollment periods is part of what is prompting early departures from the program. Older and sicker population pools also affect ACOs ability to generate savings.

As evidenced by the 2016 results of the Pioneer ACOs, improvements to the care of patients with chronic illness generated 33% of the savings, despite representing less than 20% of the patient population. Organizations exiting the program note that they do not see additional improvements based upon the way they provide care.

Both ACOs and CRM must negotiate change to bring continuous improvement. Shifting risk to care providers must include reward. For the organizations leaving one track of MSSP for another, the majority are willing to undertake limited risk.

Improved patient outcomes, record-keeping infrastructure and coordinated care are some of the benefits of ACOs. The financial impact of accountable care to the providers is worth adjustment to keep serving patients.

Contact us to learn how Deco can help lower patient cost with value-based revenue management.